Monday 22nd December: Weekly technical outlook and review

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For anyone who is trading the markets this week, caution is advised. Low liquidity is expected during the Christmas and New Year festive season.

EUR/USD:

Weekly Timeframe: Last week has likely been fantastic if you were selling the Euro and no doubt quite painful if you were buying. The EUR/USD pair dropped a whopping 349 pips, and saw the market close (1.22286) just below a weekly Quasimodo support area seen at 1.22403-1.22942. Assuming that this move took out the majority of sellers here, we could potentially see further selling down to a partially consumed weekly demand area coming in at 1.18754-1.20958 sometime this week.

Daily Timeframe: The daily timeframe on the other hand shows that just below the aforementioned weekly Quasimodo support area, price actually closed a few pips inside a fresh daily demand area seen at 1.21326-1.22234, where active buyers could indeed be waiting. It will be interesting to see what the 4hr timeframe shows.

4hr Timeframe: The 4hr timeframe shows some very interesting price action. Let’s just quickly recap before we look into this so that we’re all on the same page here. The weekly timeframe showed that the market closed below a weekly Quasimodo support area, while the daily timeframe revealed that price closed around the upper limit of a fresh daily demand area (see above for levels). Does anyone smell a fakeout here? We certainly do!

We can see from looking at the 4hr timeframe, price closed just above a 4hr Quasimodo support level at 1.22168 (located just within the aforementioned daily demand area). In addition to this, we see extra support coming in from not only a downtrend channel line (limits can be found at: 1.27696-29/10/14 – 1.24378-02/11/14), but also from the psychological number lurking just below at 1.22. Price action looks too good to not begin looking for buys.

Therefore, given the points made above, we intend to be watching for lower-timeframe confirmation between 1.22168/1.22 (green area) this week. First target for us will be around the 4hr supply area seen directly above at 1.23010-1.22734.

Current buy/sell levels:

Buy orders: Will watch for lower-timeframe buy entries between 1.22168/1.22 (Predicative stop-loss orders seen at: dependent on where one confirms the level).

Sell orders: Flat (Predicative stop-loss orders seen at: N/A).

GBP/USD:

Weekly Timeframe: The weekly timeframe shows that for the past five weeks, the GBP/USD has been trading between a nice-looking weekly demand area at 1.54260-1.56110, and a weekly swap level seen at 1.57166. A break above may see the buyers push higher towards 1.58934, another weekly swap level. And conversely, a break lower would likely attract further selling down towards a major weekly swap level coming in at 1.52700.

Daily Timeframe: The pound appears to be going nowhere in a hurry according to the daily timeframe. Since the 08/12/14, price has been sandwiched between the weekly swap level mentioned above at 1.57166, and a daily demand area seen at 1.54260-1.55378 (located relatively deep within the aforementioned weekly demand area). Let’s take a look on the 4hr timeframe to see what we can find.

4hr Timeframe: The 4hr timeframe shows that price has been trading within a down trending channel (1.56150/1.58247) since the 14/11/14. Friday’s action saw the pound sell off from a minor 4hr swap level coming in at 1.56762 forcing the market to close (1.56202) 20 pips above the round-number level 1.56.

Considering this is the Christmas trading week, and the markets could see volatile price swings due to lack of liquidity, we’d only consider looking for trading opportunities in two places, and both would require lower-timeframe confirmation. The first would be a buy at 1.55653 (blue circle), just above a 4hr demand area at 1.55402-1.55627 (located just above the aforementioned daily demand area). The second (red circle) would be a sell at 1.57127, just below a 4hr supply area seen at 1.57368-1.57163 (located around the weekly swap level mentioned above at 1.57166).

Trading in between these two areas may work, but from where we’re standing, the higher-probability trades are for the time being around areas with higher-timeframe confluence.

AUD/USD:

Weekly Timeframe: The Aussie Dollar has taken a right beating over the last five weeks. This has seen the bears claw their way deep into a major weekly demand area (0.80646-0.84601) forcing the market to close at 0.81399. A break below this area may promote further selling down towards another weekly demand area seen at 0.76999-0.79740. Let’s see what the lower timeframes have to say about this.

Daily Timeframe: The daily timeframe shows that from Monday to Friday last week prices were seen trading within a daily demand area at 0.80809-0.82270. From where we’re standing, the recent buying interest is not exactly convincing. For us to even consider entering long from the daily timeframe, price would need to close above the high 0.82734 seen marked with a red arrow. On the other hand, if further selling is seen this week, and price breaks below this daily demand area, the path south would then likely be clear down towards a daily Quasimodo support area seen at 0.76999-0.78349 (located deep within the weekly demand area mentioned above at 0.76999-0.79740).

4hr Timeframe: Friday’s trading action on the 4hr timeframe was quite pitiful to be honest with no real attempt seen from the buyers to attack 0.82, and likewise effectively very little energy was seen from the sellers. So, with that in mind, our outlook for this pair remains unchanged from the previous analysis.

We know that from the higher timeframe analysis that the overall bias for the Aussie is south at the moment, even though price is currently trading within higher-timeframe demand (see above). This week would only see us buying the AUD/USD if the market closed above and retested the round number 0.82, as the path north would then likely be clear up to at least 0.83. The reason being is simply because we believe there to be consumed supply to the left marked with a pink trend line – check out the supply consumption wicks at: 0.82354/0.82734. If, however the market decides to continue selling off, and pushes below 0.81and successfully retests it as resistance (potentially a tradable short here with lower-timeframe confirmation), we could then likely wave goodbye to both the major weekly demand area at 0.80646-0.84601, and the daily demand area seen at 0.80809-0.82270.

Taking the above into consideration, we see no safe entries on this pair at the moment, so we are more than happy to sit on the side lines and wait for further price action to unfold.

Current buy/sell levels:

Buy orders: Flat (Predicative stop-loss orders seen at: N/A).

Sell orders: Flat (Predicative stop-loss orders seen at: N/A).

USD/JPY:

Weekly Timeframe: The USD/JPY pair finished the week defending a major weekly swap level seen at 115.503, forcing the weekly candle to close near its highs (119.614) at 119.455. Providing that the buyers do not lose their enthusiasm, this week will likely see a further push north up to test a weekly Quasimodo resistance level coming in at 122.180.

Daily Timeframe: Friday’s trading action shows that price has well and truly consumed a daily supply area seen at 119.196-118.041, and as a result, the path north in our opinion is now relatively clear up to a daily supply area seen at 122.610-121.540 (within this area is the aforementioned weekly Quasimodo resistance level). It will be interesting to see what the 4hr timeframe shows

4hr Timeframe: The 4hr timeframe shows that from Thursday onwards, price was seen grinding north just missing a fresh pocket of 4hr supply seen at 119.899-119.668 before the market closed. This to us does not resemble bullish price action, quite the opposite, especially as price is trading just below supply at the moment.

Assuming that there are active sellers located around the aforementioned 4hr supply area, price will with a high probability see a healthy decline in value. The reason being is simply because of how price approached this area. We used the word grinding above, what this word really means to us is ‘consumption’. Check out how every time the buyers made a new high; they spiked south to collect unfilled buy orders to continue rallying. What this also did at the same time was likely clear/consume any buying opposition for future selling.

Therefore, if there are indeed active sellers around the 4hr supply area, we see very little stopping price from dropping down to at least 118, or possibly the 4hr decision-point demand area seen at 116.807-117.304 given enough time (as per the red arrows). We have not ignored the round number 119, we just see this as already being consumed of demand, and hence the 118 level being the first area of interest to us should a decline be seen.

Our bias for the USD/JPY is ultimately north (partly the reason why we are not keen on selling this pair), because of where price is located in the bigger picture (see above), even though we are expecting a small decline. With that being said, we are comfortable setting a pending buy order at 117.380, with a stop loss set below at 116.726. However, trading long off of 118 (tentative buy orders are seen just above at 118.074), would for us require lower-timeframe confirmation since we see no logical area to place our stop-loss order on this timeframe.

USD/CAD:

Weekly Timeframe: The weekly timeframe shows that selling interest was seen last week within a weekly supply area at 1.17225-1.15417 (surrounded by a larger weekly supply area seen at 1.18061-1.14739). Does this mean we can expect lower prices sometime this week? Let’s take a look on the lower timeframes to see what we can find

Daily Timeframe: Last week shows that sellers were hesitant in bringing prices lower last week from a daily supply area coming in at 1.17225-1.16182 (located deep within the weekly supply area mentioned above at 1.17225-1.15417). In the event that active sellers are seen coming into the market sometime this week, we see very little support stopping the market from dropping down until 1.14861, a major daily swap level.

4hr Timeframe: We feel this market is very overbought at this point in time. Both the weekly and daily timeframes show that price is trading within supply (see above), and the only thing we see currently holding the market higher is a 4hr demand area coming in at 1.15473-1.15801.

Last week, this 4hr demand area saw two obvious touches, which consequently saw a lower lows form each time, buying weakness? Let’s attempt to look at this from another angle. There are likely an unimaginable amount of traders thinking exactly like this: ‘sell, now is definitely the time to sell’. Pro money is aware of this! So, with that being the case, would you, if you were an institutional trader want all the retail traders selling with you? That is easy to answer, No! Therefore with all these sell orders getting pumped into the market now, pro money may be gobbling them up to push higher towards 1.17 before a larger sell off can commence, this would cause the utmost panic and confusion to current sellers and force them to close there positions, handing over their buy stops (once a seller closes a position it automatically becomes a buy) for pro money to sell into. If price reaches 1.17 early this week, we will look to take advantage of any possible move south, assuming we have corresponding lower-timeframe confirmation that is.

On a side note, this week, most professional investors are likely on vacation now, so our theory regarding pro money above may or may not work out, so please do bear that in mind if considering selling around 1.17, this is partly the reason why we NEED lower-timeframe confirmation there too!

Current buy/sell levels:

Buy orders: Flat (Predicative stop-loss orders seen at: N/A).

Sell orders: We will be watching the 1.17 level for lower-timeframe selling confirmation (Predicative stop-loss orders seen at: Dependent on where one confirms the level).

DAX 30:

Weekly Timeframe: Last week shows that active buyers were seen coming into the market from a weekly decision-point demand area at 9126-9467, but seemingly begun losing steam around the 9919 mark. It will be interesting to see what we can find on the lower timeframes.

Daily Timeframe: The daily timeframe shows that traders began buying heavily from Tuesday onwards, and only saw selling interest enter the market on Friday off of a minor daily swap level (pink) coming in at 9896. However, the sellers found buying opposition too strong to overcome at that point, as the buyers stepped back in and closed prices just above a major daily swap level seen at 9790. Will this be enough to entice further buying up to a daily resistance zone seen at 10048-10007 this week?

4hr Timeframe: Friday’s trading action saw the DAX (in our view) consume (red arrow) a 4hr supply area coming in at 9906-9809. This likely triggered a ton of buy stops and was just perfect for pro money to liquidate their buy positions for the week.

A few hours before the market closed for the week (9797), buyers stepped back in from within a 4hr swap area seen at 9719-9671 and closed price 7 points above the aforementioned major daily swap level. We feel that there is a good chance a rally higher may be seen this week if the buyers can hold out above here, as the path north is now likely clear up to a small 4hr supply area at 10094-10068 (seen just above a daily resistance zone at 10048-10007). We intend to pay close attention to how price behaves around the open today, if we see bullish confirmation on the lower timeframes, we will jump on board and attempt to ride the wave north up to the small 4hr supply area mentioned above at 10094-10068.

Current buy/sell levels:

Buy orders: Flat (Predicative stop-loss orders seen at: N/A).

Sell orders: Flat (Predicative stop-loss orders seen at: N/A).

DOW 30:

Weekly Timeframe: Serious buying interest was seen on the DOW last week off of an ignored weekly Quasimodo level at 17135. This saw the index move a cool 873 points, forcing the market to close at 17821.

Daily Timeframe: The daily timeframe shows that further buying was indeed seen on Friday, and as expected active sellers were waiting around the daily Quasimodo resistance level at 17893. In order for the DOW to continue on its seemingly everlasting trend north, the buyers will have to consume any sellers around this level beforehand. However, assuming that the buyers take a back seat here, we see very little stopping prices dropping all the way down to a daily swap level coming in at 17362. It will be interesting to see what the 4hr timeframe has to say about this.

4hr Timeframe: We mentioned in the daily timeframe analysis that we saw very little stopping the market from declining down towards a daily swap level seen at 17362. The 4hr timeframe on the other hand shows that price is currently capped between the aforementioned daily Quasimodo resistance level, and a small 4hr swap level coming in at 17759. In order for a sell off to be seen, this 4hr swap level will need to be taken out, this will as a consequence likely clear the path south down towards a small 4hr decision-point demand area coming in at 17326-17381, conveniently located around the aforementioned daily swap level.

A break above the daily Quasimodo resistance level however will likely force the market to test 17937, a 4hr Quasimodo resistance level where selling interest could enter the market. However, a close above this level is ultimately what we would love to see.

Given the points made above, we intend to watch the following levels this week:

If a close below 17759 is seen, we will attempt to enter short with lower-timeframe confirmation on a (potential) retest around the 17748 mark, and ultimately target 17391, seen just above the 4hr decision-point demand area at 17326-17381.

In the event that the buyers push prices up to the 4hr Quasimodo resistance level sometime this week, we will be watching for confirmation around 17928 to enter short.

A close above this 4hr Quasimodo level will be our cue to watch if price retests this level as support, if so, we’ll attempt to enter long around 17944, again only with corresponding lower-timeframe confirmation.

Current buy/sell levels:

Buy orders: 17944 [Tentative] (Predicative stop-loss orders seen at: dependent on where once confirms the level).

XAU/USD (Gold):

Weekly Timeframe: Last week saw selling interest originate from a small weekly supply area coming in at 1255.20-1226.18. Providing that the sellers do not lose their spirit here, a further decline may be seen this week down towards 1136.30, a weekly decision-point demand level.

Daily Timeframe: The daily timeframe shows that apart from Monday’s sell off which forced the market relatively deep into a daily decision-point demand area at 1185.97-1203.20, Gold saw rather miserable trading conditions last week. The buyers seem to still be struggling to maintain support within this daily area. In the event that the buyers find some strength here, we see very little stopping the market rallying up to a small daily Quasimodo resistance level at 1249.45, since (in our view) most of the selling opposition has already likely been consumed around the daily decision-point supply area at 1235.51-1222.37 seen marked with a red arrow.

However, on the flip side, a small spike/tail was seen below here on Wednesday, consequently hitting a major daily swap level coming in at 1182.01. This in our opinion is the last line of defense against the aforementioned weekly supply area; a daily close below here would effectively expose 1149.42 which in turn could likely fuel further selling. Let’s take a look to see what the 4hr timeframe has to say about this.

4hr Timeframe: We really feel for anyone who attempted to trade Gold on Friday, the trading conditions were awful. Technically, the market did not see much change; and as such, most of Friday’s analysis still remains valid. It was mentioned in the previous analysis that prices broke above the high seen marked with a red arrow at 1202.81, which was our cue to begin looking for areas to enter long at. This week will begin with us watching the 15 minute timeframe for a confirmed entry long around the 4hr Quasimodo support level seen at 1191.81. In the event that we do find a buy entry here today or even tomorrow, our overall target will be set around 1234.44, just below a 4hr swap level coming in at 1235.40.

As already mentioned in the previous analysis, the reason behind us believing price could move so high is simply because selling opposition has already likely been consumed (blue arrow) around the 4hr supply area seen at 1220.56-1213.26, and in addition to this, lurking just above this area of supply is what we believe to be consumed sell orders/supply as well (pink downtrend line). Check out the price behavior here, we see this as pro money spiking north to collect unfilled sell orders to continue selling, but what this also does at the same time is clear the path north for future buying .

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